Which Mortgage Is Right For You?
As we enter October, Lakewood real estate remains as active as ever. Through 9 months, sales are up over 3% as compared to the first 9 months of 2014, and the Median Sales Price is up over 5%. Despite only 77 single family homes for sale (as of October 6), the market is active with buyers looking for the right house to make their home. Lakewoodites can track local market activity at www.HomeValuesInLakewood.Info.
With interest rates remaining at historic lows, buyers are often asking: Which is better-- A 30-year fixed-rate mortgage or go for a lower-interest 15-year one?
The answer: It depends.
Typically, a 15-year mortgage allows you to pay off your mortgage quicker and save a significant chunk of money on interest. However, a 30-year may be a logical choice for most people because it has more advantages. Let’s take a look at the differences:
- Payments are less with a 30-year mortgage which enables more consumers to qualify for home purchases.
- Generally, you can make additional principal payments to pay off your loan faster without penalty.
- A 15-year loan means you are committed to giving that extra money to your lender each month, whether you can really afford to at the time or not.
- The higher payments of a 15-year mortgage make little sense if they keep you from building savings or contributing to a 401(k) plan, IRA or college fund.
- The amortization schedule of 30-year fixed is back-heavy, with early-term payments big on interest and light on principal.
- A 15-year fixed is always light on interest which lowers its taxpayer benefits.
While it’s true you gain more of a tax break from a 30-year loan, it shouldn’t be the main consideration when deciding on a term. The 30-year borrower pays less in yearly taxes because they pay significantly more in interest.
So it all comes down to choice and circumstances:
- Choose the 15-year loan if you have the financial wherewithal to assume the payments. Your interest savings will be substantial and you’ll own your home faster.
- The 30-year loan offers lower payments and greater flexibility. You can always choose to pay more on your mortgage when the money is available.
Your real estate agent, lender, and tax professional can help you navigate your options as you make the best decision based on your personal circumstances.
Chris Bergin is a licenced real estate agent with BHHS Lucien Realty in Lakewood and can be reached at Chris@ChrisBergin.com.